Business context and reporting period
Entity and period: The supplied filing is Lions Gate Entertainment Corp.’s unaudited Form 10-Q for the three months ended June 30, 2019 (its fiscal 2020 first quarter), not a filing under the name STARZ Entertainment Corp. Lionsgate reports Motion Picture, Television Production, and Media Networks, including Starz-branded services.
Lionsgate describes itself as a global content business, supported by a film and television library of nearly 17,000 titles. The interim results are not necessarily indicative of the full fiscal year.
Key financial results
| Metric | Quarter ended June 30, 2019 | Prior-year quarter |
|---|---|---|
| Revenue | $963.6 million | $932.7 million |
| Operating income (loss) | $(3.2) million | $38.2 million |
| Net loss attributable to Lionsgate shareholders | $(54.0) million | $(7.9) million |
| Basic and diluted loss per share | $(0.25) | $(0.04) |
| Operating cash flow | $37.3 million | $113.3 million |
Revenue increased 3.3%, while operating expenses rose 8.1%. Operating margin was approximately negative 0.3%, versus 4.1% a year earlier; net margin was approximately negative 6.1%, versus negative 1.2%. Direct operating costs increased to $568.0 million and distribution and marketing costs to $250.5 million, including higher theatrical marketing spending. Interest expense was $49.0 million. The filing does not present a single consolidated gross-margin percentage.
Cash flow and liquidity: Investing activities used $9.5 million and financing activities used $18.0 million. Cash and cash equivalents were $196.0 million at June 30, up from $184.3 million at March 31. Current assets were $1,359.5 million and current liabilities $1,699.3 million. Operating cash flow included a reported approximately $41.1 million benefit from the receivables monetization program; capital expenditures were $8.6 million.
Debt and obligations: Debt, net of issuance costs, was $2,895.0 million, including $57.4 million current; gross debt including finance leases was $2,959.7 million. The company also reported $615.8 million of film obligations and production loans. No revolving-credit borrowings were outstanding, and $1.5 billion of revolving capacity was available, subject to covenants. The company was in compliance with applicable debt covenants. It had hedged $1.7 billion of floating-rate corporate debt with interest-rate swaps.
Segments and changes versus the prior period
- Motion Picture: Revenue rose 8.9% to $397.8 million, led by theatrical revenue and the performance of John Wick: Chapter 3 – Parabellum. Segment profit fell to $7.6 million from $51.6 million as direct costs and theatrical marketing increased; U.S. theatrical prints and advertising nearly doubled to $102.0 million.
- Television Production: Revenue was broadly flat at $279.8 million. Segment profit improved to $25.0 million from $15.6 million, primarily due to lower direct operating costs as a share of revenue.
- Media Networks: Revenue increased 4.9% to $372.4 million, with higher average OTT subscriptions at Starz Networks and expansion of STARZPLAY International. Segment profit declined to $60.6 million from $88.5 million; STARZPLAY International recorded a $42.2 million segment loss as launch and programming costs increased.
Overall segment profit declined to $91.5 million from $144.5 million. Consolidated operating results also reflected $45.0 million in purchase-accounting and related adjustments. Shareholder-attributable net loss widened to $54.0 million from $7.9 million. The prior-year period included $15.9 million of interest on the former dissenting-shareholders’ liability, which did not recur.
Outlook, commentary, risks and unusual items
- Outlook: No numerical earnings or revenue guidance is provided in the supplied filing. Management said operating cash flow, cash on hand, revolving-credit availability, receivables monetization, tax-efficient financing and production financing should meet known operating and debt-service needs for the foreseeable future. This is management’s expectation, not a guarantee.
- Investment and expansion: Management said the dividend was suspended in November 2018 to focus on Starz’s global growth and strengthening the balance sheet. STARZPLAY’s international expansion is increasing costs; management said these expenses would continue as the service expands.
- Cash and financing item: Lionsgate sold trade receivables with a $374.5 million carrying value for $372.2 million net proceeds, recording a $2.3 million loss. At quarter-end, $394.0 million of sold receivables remained outstanding and were still serviced by Lionsgate.
- Hedges and comprehensive loss: A $45.9 million after-tax unrealized loss on cash-flow hedges contributed to comprehensive loss of $103.4 million. The company estimated approximately $17.3 million of swap losses in accumulated other comprehensive loss would be reclassified to interest expense over the following year.
- Legal matters: A prior Starz shareholder-litigation settlement of $92.5 million was paid in the quarter ended December 2018, with $37.8 million reimbursed by insurance. Lionsgate was seeking additional reimbursement and defending an insurer’s lawsuit concerning a $10.0 million contribution. The filing says additional losses on pending matters were reasonably possible but could not be reasonably estimated.
- Other risk factors: The filing highlights uncertain film and program performance, substantial production and marketing investment, cost overruns, debt and covenant constraints, acquisition and disposition risks, technology and consumer changes, intellectual-property costs, and sensitivity of content and goodwill valuations to forecasts. The company reported no material changes to the risk factors in its March 2019 annual report. Operating results depend on estimates of ultimate content revenue and costs; actual outcomes may differ.
- Accounting change: Adoption of lease accounting on April 1, 2019 recognized operating-lease liabilities of approximately $187.2 million and corresponding right-of-use assets of $157.4 million, with no material operating-statement impact reported.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is Lions Gate Entertainment Corp.’s 10-Q, not a STARZ Entertainment Corp. filing.
- Assess whether the higher theatrical and STARZPLAY spending can produce sustained segment earnings and improved consolidated profitability.
- Track operating cash generation, including the contribution and continued availability of receivables monetization, alongside film and program investment needs.
- Review debt maturities, interest exposure, covenant headroom and the potential cash requirements of redeemable noncontrolling interests.
- Monitor the insurer disputes, any additional insurance recovery, and developments in other legal contingencies for which losses were not estimable.